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Caspian Oil Pipeline Consortium prepares for court battle with Russia over stoppage orders

Three industry sources said that the Western-backed Caspian Pipeline Consortium was preparing to take on a Russian court to challenge a regulatory order which has crippled their export capabilities and threatens to cut off oil flow to global markets.

After a series of inspections in response to an oil spill that occurred on the Black Sea, the Russian transport regulator ordered CPC, which includes Chevron, Exxon Mobil and others, to suspend its operations at two moorings.

A court in Russia will review the decision of the regulator. Sources who spoke on condition of anonymity said that the CPC intends to contest the decision during the hearings.

The CPC declined comment. Rostransnadzor did not respond to a comment request.

CPC is a major oil export route in Kazakhstan. This is due to the fact that the country has exceeded its export quotas, primarily because of the production increase from the Chevron-led Tengiz Oilfield.

Saudi Arabia and other OPEC+ countries have also pressed Kazakhstan to reduce production in order to meet its quotas.

OPEC+ announced on Thursday that it would increase its output before the scheduled date, indicating the group's confidence in non-compliant member countries to reduce their output.

Traders estimate that the CPC pipeline which transports about 1% of global oil supply could lose 50% of its capacity, if it is only allowed to use one berth.

The CPC pipeline was set to export 1.7 million barrels of oil per day in April. This is approximately 6.5 millions metric tons. Therefore, more than 800,000. barrels could be lost per day.

The traders also stated that the oil production of Kazakhstan, which exports 80% of the total oil through this route, will decline if these restrictions are in place for longer than a week.

CPC announced this week that the restrictions would continue at the terminal until the irregularities discovered by the watchdog and which were not made public are addressed.

In the past, Russia has imposed restrictions on the exports of the consortium due to bad weather and technical problems.

A court in Novorossiisk, Russia, ordered CPC to stop the terminal operation for 30 days because of its documentation on oil spills.

Benjamin Godwin is a partner of PRISM Strategic Intelligence in London, an investment advisory company.

The pipeline is used by major energy companies in the U.S., Europe and elsewhere.

The restrictions were implemented after U.S. president Donald Trump expressed his displeasure with Russia for the slow pace of peace talks in Ukraine and threatened to impose secondary duties on Russian oil buyers.

Tengizchevroil is Chevron's Kazakhstan-based oil venture. In an email, it stated that the company was focused on ensuring safe and reliable operations. It referred any further questions to CPC.

On Wednesday, Russia, the second largest oil exporter in the world, imposed further restrictions on a major oil export route. It suspended a mooring from the Black Sea port Novorossiisk, just a day after CPC's restrictions took effect. Mark Potter, David Evans and Mark Potter are responsible for reporting.

(source: Reuters)